A limited constitutional government calls for a rules-based, freemarket monetary system, not the topsy-turvy fiat dollar that now exists under central banking. This issue of the Cato Journal examines the case for alternatives to central banking and the reforms needed to move toward free-market money.

The more widespread use of body cameras will make it easier for the American public to better understand how police officers do their jobs and under what circumstances they feel that it is necessary to resort to deadly force.

Americans are finally enjoying an improving economy after years of recession and slow growth. The unemployment rate is dropping, the economy is expanding, and public confidence is rising. Surely our economic crisis is behind us. Or is it? In Going for Broke: Deficits, Debt, and the Entitlement Crisis, Cato scholar Michael D. Tanner examines the growing national debt and its dire implications for our future and explains why a looming financial meltdown may be far worse than anyone expects.

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Tag: Paul Krugman

Unemployment benefits could continue up to 73 weeks until this year, thanks to “emergency” federal grants, but only in states with unemployment rates above 9 percent. That gave the long-term unemployed a perverse incentive to stay in high-unemployment states rather than move to places with more opportunities.

Before leaving the White House recently, former Presidential adviser Gene Sperling had been pushing Congress to reenact “emergency” benefits for the long-term unemployed. That was risky political advice for congressional Democrats, ironically, because it would significantly increase the unemployment rate before the November elections. That may explain why congressional bills only restore extended benefits through May or June.

Sperling argued in January that, “Most of the people are desperately looking for jobs. You know, our economy still has three people looking for every job (opening).” PolitiFact declared that statement true. But it is not true.

The “Job Openings and Labor Turnover Survey” (JOLTS) from the Bureau of Labor Statistics does not begin to measure “every job (opening).” JOLTS asks 16,000 businesses how many new jobs they are actively advertising outside the firm. That is comparable to the Conference Board’s index of help wanted advertising, which found almost 5.2 million jobs advertised online in February.

With nearly 10.5 million unemployed, and 5.2 million jobs ads, one might conclude that our economy has two people looking for every job (opening)” rather than three. But that would also be false, because no estimate of advertised jobs can possibly gauge all available jobs.

Consider this: The latest JOLTS survey says “there were 4.0 million job openings in January,” but “there were 4.5 million hires in January.” If there were only 4.0 million job openings, how were 4.5 million hired? Because the estimated measure of “job openings” was ridiculously low. It always is.

Paul Krugman managed to discover “America’s Taxation Tradition” in an unlikely spot – a fiery old political speech by an unsuccessful presidential candidate who called for a “graduated inheritance tax on big fortunes.” Dripping with irony, Krugman asks “Who this left-winger? Theodore Roosevelt, in his famous 1910 New Nationalism Speech.”

Readers are supposed to assume that because Roosevelt had been a Republican, his New Nationalism speech could not possibly have been remotely left of center. Yet the phrase “new nationalism” and the advocacy of an inheritance tax were both borrowed from Herbert Croly’s highly influential 1909 manifesto of the Progressive Era, The Promise of American Life.

As Christopher Lasch noted, “Theodore Roosevelt read The Promise, found it highly flattering to himself, publicly praised it, and used it as an argument for his ‘new nationalism.’ Croly did not so much influence Roosevelt as read into his career an intellectual coherence which Roosevelt then adopted as his own view of things.” Croly, who later launched The New Republic magazine, supported Roosevelt in the 1912 Presidential race and Robert La Follette’s Progressive Party campaign in 1924, before becoming disenchanted and (as Lasch put it) “flirting with socialism.”

In his 1909 book, Croly said, “In economic warfare … it is the business of the state to see that its own friends are victorious. It holds … a hand in the game.” The state, said Croly, must look out for “the national interest,” and help those to win “who are most capable of using their winnings for the benefit of society.” To the properly cynical, that sounds like an open invitation to crony capitalism and corruption, if not kleptocracy.

In the New Nationalism speech Roosevelt said, “We should permit [a fortune] to be gained only so long as the gaining represents benefit to the community. This, I know, implies a policy of a far more active governmental interference with social and economic conditions in this country … No man should receive a dollar unless that dollar has been fairly earned. Every dollar received should represent a dollar’s worth of service rendered — not gambling in stocks, but service rendered” (Roosevelt gambled-away his own inheritance on a ranching venture, not stocks).

Not quite socialist in 1909, Croly tolerated, “preservation of the institution of private property in some form, [but only with] the … radical transformation of its existing nature and influence.” Similarly, Roosevelt allowed that he would prefer to stop short of government ownership of business (socialism), if government control (fascism) would suffice. “I do not wish to see the nation forced into the ownership of the railways,” said Roosevelt, “if it can possibly be avoided.”

In short, the Roosevelt/Croly New Nationalism certainly did lean in a “leftist” (statist and collectivist) direction with respect to state supremacy over private property.

As afterword, here is something I wrote in a 1995 anthology revisiting Croly’s The Promise of American Life:

Herbert Croly’s quaint 1909 vision of the merits of increased centralization was founded on the notion that ‘American state governments have been corrupt and inefficient largely because they have been organized for the benefit of corrupt and inefficient men.’ The federal government, by contrast, was apparently organized for the benefit of saints and angels. Still, Croly’s idea of ‘big government’ in Washington looks like a bargain by today’s standards. He reasoned that a much stronger federal government could be financed out of a graduated inheritance tax: ‘The tax at its highest level,’ Croly wrote, ‘could be placed without danger of evasion at as much as 20 percent.’ Some recent estimates suggest that Croly may have been correct about how high the estate tax could be pushed without losing money. In any case, if a 20 percent inheritance tax were the only federal tax we had to worry about, as Croly proposed, the states would have little difficulty in raising money for the services that are still almost entirely a state or local responsibility, such as police protection, public schools, and roads. (The federal government, by contrast, is almost entirely involved in taking money from some people and giving it to others).

[w]e had a scientific revolution in economics, one that dramatically increased our comprehension of the world and also gave us crucial practical guidance about what to do in the face of depressions. The broad outlines of the theory devised during that revolution have held up extremely well in the face of experience, while those rejecting the theory because it doesn’t correspond to their notion of common sense have been wrong every step of the way.

Yet a large part of both the political establishment and the economics establishment rejects the whole thing out of hand, because they don’t like the conclusions.

Galileo wept.

While there is no question of the importance of Keynesian models in 20th-century economic thinking, the current pluralism of modeling and empirical strategies in macroeconomics is a fact of life. The existence of divergent views on macroeconomics should not be surprising, given by the difficulty of doing clean empirical tests. Krugman does his discipline a disservice by elevating one narrow subset of models to the status of a well-established scientific truth and presenting the views of a large part of what he calls “the economics establishment” – i.e. of numerous other academics – as somehow obviously false and irrelevant.

So when it comes to economic journalism, one can – and should – do better than Krugman. To see a living example, come next Thursday to Cato and listen to Tim Harford (or watch live here if you can’t make it). Harford may disagree with libertarians on many issues but, unlike Krugman, he has always been the epitomy of civility. What is more, his writings demonstrate that one can communicate complicated ideas to wide audiences without falling into tired ideological clichés and self-righteousness.

New York Times columnist Paul Krugman has recycled another phony argument about something I wrote many years ago.

He begins by citing Matt O’Brien who found that Fed governor Janet Yellen in October 2005 was predicting there would be no great impact on the economy “were the house-price bubble to deflate.” O’Brien concludes that, “Back in 2005, she didn’t appreciate how much shadow banks relied on AAA-rated mortgage-backed-securities (MBS) as collateral to fund their day-to-day operations—or how much even this supposedly high-quality collateral could go bust if housing did.” But that is “What Janet Yellen and Everyone Else Got Wrong,” as Krugman’s column is rightly titiled. Nobody in 2005 grasped what a precarious house-of-cards was being built, worldwide, on U.S. mortgage-backed securities.

O’Brien found another quote suggesting Yellen did get it right by December 2007. Yet the recession had already started by then, and blogger Bill McBride and others were worrying that rising unemployment would cause mass foreclosures (not the other way around).

“We had a monstrous housing bubble,” writes Krugman, “and Janet Yellen recognized it in real time [December 2007]…. It’s important to notice that just being willing to see the obvious here puts Janet Yellen way ahead of a lot of people who still presume to give us advice on the economy.”

He links to a 2008 list of 28 people who were supposedly way behind Yellen in “being willing to see” that house prices had fallen 21.6 percent by December 2007, even though nearly all of those 28 references were from 2003–2005. My name is at the top of that list, of course. But why am I on it while Krugman and Yellen are not?

The “Unofficial List of Pundits/Experts Who Were Wrong on the Housing Bubble,” was compiled by a finance lawyer who blogs as “Economics of Contempt.” He worked as a legislative aide to a House Democrat and dealt with derivatives at Lehman Brothers. The list of 28 could find no investment bankers who got it wrong, even at Lehman or Bear Stearns, but it did find a lot of conservatives and libertartians.

Ever since Obamacare became law, I have been counseling states not to establish the law’s health insurance “exchanges,” in part because:

to create an Exchange is to create a taxpayer-funded lobbying group dedicated to fighting repeal. An Exchange’s employees would owe their power and their paychecks to this law. Naturally, they would aid the fight to preserve the law.

California was the first state both to reject my advice and to prove my point.

They claimed that health plans offered through Covered California in 2014 will cost the same or less than health insurance costs today. “The rates submitted to Covered California for the 2014 individual market,” they wrote, “ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions.”

See? No rate shock. California’s top Obamacare bureaucrat, Peter Lee, declared his agency had hit “a home run for consumers.” Awesome!

Unfortunately, anyone who knows anything about health insurance or Obamacare knew instantly that this claim was bogus, for three reasons.

Obamacare or no Obamacare, health insurance premiums rise from year to year, and almost always by more than 2 percent. So right off the bat, the fact that Covered California claimed that premiums would generally fall means they’re hiding something.

Obamacare’s requirement that insurers cover all “essential health benefits” will force most people who purchase coverage on the “individual” market (read: directly from health insurance companies) to purchase more coverage than they purchase today. This will increase premiums for most everyone in that market.

Obamacare’s community-rating price controls (also known as its “pre-existing conditions” provisions) will increase premiums for some consumers (i.e., the healthy) and reduce premiums for others (i.e., the sick). So it is misleading for Covered California to focus on averages because averages can hide some pretty drastic premium increases and decreases.

In End This Depression Now! (pages 77-78) Paul Krugman offers the strangest arguments I have seen. The story opens with familiar fulminations about the “top 1 percent” (those earning more than $366,623 in 2011). As he put it in a 2011 column, “income inequality in America really is about oligarchs versus everyone else.”

“Incomes of the rich,” his book claims, “are at the heart of what has been happening to America’s economy and society.” Yet it apparently requires great bravery to even dare to mention “the rising incomes” of the top 1 percent or top 0.1 percent:

Merely to raise the issue was to enter a political war zone: income distribution at the top is one of those areas where anyone who raises his head above the parapet will encounter fierce attacks from what amount to hired guns protecting the interests of the wealthy. For example, a few years ago Thomas Piketty and Emmanuel Saez … found themselves under fire from Alan Reynolds of the Cato Institute, who has spent decades arguing that inequality hasn’t really increased; every time one of his arguments is thoroughly debunked, he pops up with another.

To be called a “hired gun” of the wealthy might be insulting if it was not so ridiculous. First of all, no employer has ever tried to influence what I write. Second, I have been a very successful investor and live quite comfortably from realized capital gains plus mandatory distributions from IRA, Keogh and 403(b) accounts that President Obama would regard as much too large. I negotiated a token salary from Cato (smaller than my Social Security check) but return at least 40 percent of it as a charitable donation. I am usually in the top 1 percent, at least when stocks are up, and thus not easily bribed. I would be flabbergasted if Krugman is not also a member of that demonized bunch of oligarchs.

Krugman complains that some of my arguments changed (new ones popped up) over decades, but arguments should change after decades of new data. I must have made a couple of mistakes since 1992, but mistakes (including Krugman’s) are not evidence of deliberate deception or corruption.

Responding to a student question after a recent Kansas State debate with Brad DeLong I posed a conceptual puzzle. I asked students to ponder why textbooks treat Treasury sales of government bonds as a “stimulus” to demand (nominal GDP) in the same sense as Federal Reserve purchases of such bonds. “Those are very different polices,” I noted; “Why should they have the same effect?”

The remark was intended to encourage students to probe more deeply into what such metaphors as “stimulating” or “jump starting” really mean, not to accept as dogma that fiscal and monetary policy are equally effective or that economists are certain just how they work.

DeLong’s misinterpretation of my question led him to lecture me that, “if you really do think that monetary expansion undoes fiscal expansion because monetary expansion buys bonds and fiscal expansion sells bonds, you need to educate yourself.” Citing that wholly imaginary rewriting of my question, Paul Krugman wrote, “My heart goes out to Brad DeLong, who debated Alan Reynolds and discovered that his opponent really doesn’t understand at all how either fiscal or monetary policy work.”

Did I really say that “monetary expansion undoes fiscal expansion”? Of course not. If that had been my question, I would have answered myself by saying that piling more debt on the backs of taxpayers is unlikely to stimulate private spending (much less encourage more or better labor and capital) unless the added debt is “monetized” by the Fed and regulators allow banks to lend more to private borrowers. DeLong made much the same point by saying, “Expansionary monetary policy makes it a sure thing that expansionary fiscal policy is effective by removing the channels for interest-rate and tax crowding out.”

The Fed’s current bond-buying spree is bound to have some effect, if only to facilitate cheap corporate buybacks of shares and speculative day trading of such stocks on margin. But selling more government bonds per se (if the Fed won’t buy more) would be just as much an added burden for taxpayers as it would be a benefit to whoever receives the resulting government transfers, contracts or subsidies.